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Other Considerations

By ResidenceBuy India  |  0 comments   |  1857 views  |   Feb 06 2012

§   Loan pre-approval: It is a commitment in writing from a lender to lend you a specific amount to buy a home under certain conditions (e.g. term of loan, principal balance, and interest rate). A pre-approval holds more weight than a pre-qualification, which is an estimate of how much you may be able to borrow. It's important to have pre-approval for several reasons: (1)  It will let you know how much you can spend on a home and the size of mortgage you'll be able to obtain; (2) it will give you an advantage when it is time to bid on a property, and it will speed up the process when you find a home you want to buy.

§  Tax incentive :  Here are the tax implications of taking a home loan:

·         Tax benefit on principal amount: You can avail of the tax deduction on principal, stamp duty, registration fee, and other expense for the transfer of purchase of the property. In order to enjoy the deduction you should not sell it before five years (if you do sell it before that period then the deduction will discontinue and all previous deduction will be added to your taxable income).

·         Tax benefit on interest: Claim a deduction for the interest paid on a housing loan (and on loans taken for repair, renewal or reconstruction of an existing property) with deduction calculated on an accrual basis. For owner-occupied property (financed by a housing loan taken after 1 April 1999), interest deduction is up to Rs. 1.5 Lakh a year. Note for this to apply, the acquisition or construction of the property is completed within three years of the time at which the loan is availed. For co-owned property each member can get this deduction separately (so deduction up to Rs. 3 Lakh for a home loan taken jointly by husband and wife). For rented property this deduction is the full interest amount (on accrual basis) along with a further flat deduction of 30% of the annual property value (as described in section 23 of Income Tax act of India). 

§  Stamp duty: Stamp duty is the tax the buyer pays to the State Government for buying a property. By paying the proper stamp duty, you can get your property registered and enjoy a clean title. The tax varies from state to state, but it is usually a flat and variable fee based on property value.  For example, for a property worth Rs. 50 Lakh, the stamp duty can be as high as Rs. 41,000 (this example is for Mumbai). The stamp duty is usually paid on the execution of the sale or the day after. Lenders have typically included it in the loan amount; however recent RBI directive has prohibited such practice. So if you are a new home buyer then keep in mind that payment of stamp duty will leave less money for down payment and other expenses.

§  Mortgage insurance: If you are covered by mortgage insurance, under certain circumstances (say death or other disabilities that prevent you from repaying mortgage) the insurer will pay the remaining loan amount, thus sparing your family from residual obligation to the lender. It is a tradeoff between the current premium and future unfavorable risk.

§  Home insurance: Home insurance protects your home from unfortunate events that lead to property damage and other associated loss (e.g. flood, arson, destruction from other natural cause etc.). We strongly recommend you to buy property insurance for your peace of mind.

§  Possibility of mortgage rejection: Unfortunate things happen, so it is wise to be mentally ready for this adverse eventuality. We suggest that you don't enter into any unconditional contract with the seller to buy the property. If you do so then with no loan from the lender you are open to legal proceeding from the seller for breach of agreement.

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